One real-world example of an external benefit is education. When someone is educated, they are more likely to be productive members of society. This productivity benefits not only the individual, but also society as a whole. The individual does not pay for the benefits that their education creates for society, so these benefits are external benefits.

Another example of an external benefit is research and development. When companies invest in research and development, they create new products and services that can benefit society as a whole. The companies do not pay for the benefits that their research and development creates for society, so these benefits are external benefits.

External benefits can be a good thing, because they can lead to market efficiencies. When companies or individuals create benefits that they do not pay for, they are making decisions that are in the best interests of society as a whole. This can lead to more innovation, more productivity, and other benefits.

However, external benefits can also be a problem, because they can lead to market failures. When companies or individuals create benefits that they do not pay for, they are not making decisions that are in their own best interests. This can lead to too little innovation, too little productivity, and other problems.

There are a number of ways to address the problem of external benefits. One way is to subsidize the activities that create them. For example, the government can subsidize education to encourage more people to get an education. Another way to address external benefits is to create property rights in the benefits. For example, the government can grant patents to companies that develop new products and services.

External benefits are an important concept in economics. They can lead to both market efficiencies and market failures. It is important to understand the concept of external benefits so that we can design policies that promote economic efficiency.